Litigation funds… chasing the ambulance
Direct investment in litigation is relatively new: until 1967, investing in the legal cases of others was a crime in the UK.

Following Lord Justice Jackson’s review of civil litigation costs last year, however, the government seems keen to encourage litigation funds, which finance claimants’ cases in return for a share of any damages. The rewards can be significant.

This year Juridica Investments, one of the two UK-listed litigation funds along with Burford Capital, secured $4.5m for the fund on an initial investment of $2.4m in its biggest win to date. Such returns have helped attract several big institutional investors.

Invesco Perpetual is the biggest shareholder in both Juridica and Burford. The recession has, if anything, only increased the opportunities for litigation funds.

However, a backlog of cases in the US courts has delayed judgment on many of the 30 cases Juridica has invested in, almost all of them in the US, according to Richard Fields, the firm’s chief executive.

Now, however, the portfolio is starting to turn over, with three more cases likely to conclude this year.

There’s significant scope for litigation funding to grow, Fields argued. “There is a shortage of capital so there is a very large opportunity for funds like ours to select high-quality investments.”

The opportunity, though, is not for everyone. For a start, according to Leslie Perrin, chairman of litigation funding specialist Calunius Capital, investors need to be willing to tie up their funds for at least three to five years.

They also need to be willing to invest in an area that even supporters admit is more esoteric than most. “They need a stomach for private equity style liquidity and a stomach for a very new strategy,” Perrin said. Nevertheless, he said there had been no difficulty attracting institutional investors.

The reason, again, is not just the prospect of attractive returns, but also valuable diversification that nervous investors are keen to secure. Brett Carron, chief executive of another unlisted fund, Habour Litigation Funding, said: “To the extent that you can have anything that is uncorrelated to the markets, this is it.”